An Entrepreneur’s Guide To Patents: Application Strategy For Utilization Or Monetization

7 years

Editor’s note:This is the third in a series of articles by Brad Woodcox that explores the topic of intellectual property for entrepreneurs. The first examined the basics of the system. The second explored ways to determine whether patents are a good strategic move for your business. Woodcox is a technical specialist focusing on startup development for Novak Druce + Quigg, an intellectual property super boutique law firm. Follow him on Google+ and Twitter.

If you’ve made the decision that patents are a good strategic element for your business, the next step in the process is to determine how you should structure the patent applications to best leverage the patents in your business. Selecting a non-optimal method could cost you significantly in lost opportunity. In this article, I will discuss a patent application strategy that may be beneficial for many startups and small businesses.

As discussed in part 1 of this series, the time from filing a non-provisional utility application to final disposition of the application is typically 3-4 years using the standard examination process with the United States Patent and Trademark Office (USPTO). With this process, the standard USPTO application fees apply, which may include, but are not limited to, the filing fee, search fee, examination fee, and processing fee. Three to four years is a long time in “startup years.” There are a multitude of startup strategies, but generally obtaining patent protection sooner rather than later is preferential. To illustrate this, I detail two typical invention/startup strategies at opposite ends of the spectrum.

Typical Invention Strategies

Licensing/Sale. This scenario often arises when an inventor chooses not to pursue a startup company full-time but still wants to profit from the idea. The inventor conceptualizes the idea and may develop a prototype. In order to protect the idea, the inventor desires to obtain one or more patents covering the elements of the invention. The inventor will then license or sell these patents to another company, which is in a position to commercialize the invention. (This strategy is typically viewed as a lower risk and lower reward than the second scenario, as some of the risk and reward is shared with the licensee or acquirer of the patents.)

In general, a granted patent will entice more demand and a higher price tag than a patent application, as the granted patent has clear rights while the application just has the possibility for future rights (and additional costs of continuing prosecution of the application). Hence, in this scenario, an inventor is incentivized to obtain a patent quickly in order to capitalize on the potential financial benefits of the granted patent.

Commercialize. A second scenario arises when an inventor wants to directly commercialize the invention. This may include building, manufacturing, and/or selling the elements associated with the invention. In this case, an inventor would desire to utilize patents to attempt to block competitors and gain a competitive advantage. However, an inventor could only enforce these rights after the patent is granted. Further, if the company needs to raise capital, some investors will utilize the presence of patents in their determination to invest or not invest and the presence may even affect the valuation determined during the investment round. Hence, in this scenario, an inventor is again incentivized to obtain a patent quickly in order to capitalize on the potential financial benefits of the granted patent.

Patent Application Options

In both of the preceding scenarios, the inventor/entrepreneur benefits by having a patent issued quickly. To address the application speed issue, the USPTO has developed two processes that permit significantly faster examination but utilize distinct rules and additional fees.

Track One Prioritized Examination. The USPTO established the Track One procedure in 2011 to provide a final disposition (allowance or final rejection) within 12 months on average for all applications submitted under this process. The process carries an additional fee of $2,400 for “small entities” (or $4,800 for large entities) and $300 publication fee, on top of the typical USPTO application fees. This process is still quite new, so there is limited data regarding typical outcomes.

Accelerated Examination. The process for the Accelerated Examination was established in 2006. Similar to the Track One procedure, the USPTO’s goal is to provide a final disposition (allowance or final rejection) within 12 months on average for all applications submitted under the Accelerated Examination process. This process carries a fee of $130 in addition to the typical USPTO application fees.

At a high level, the Track One and Accelerated examination processes appear quite similar. They both require prompt response to all communication by the applicant (or attorneys) and a specific strategy. If certain criteria (prompt responses or claim amendments) aren’t followed during the process, the application will be removed from the expedited track and placed into the standard track.

Differences between the two expedited tracks emerge when looking deeper into the details. Track One is similar to the Standard track (again, covered in part 1 of the series), except the reviews and timelines are much quicker for Track One at an added cost of several thousand dollars. The Accelerated process differs from the Track One and Standard processes in that a pre-examination search is performed prior to submitting the application. The search is performed by the patent attorney or staff and comes at an extra up-front cost (up to $5,000), but it can result in significantly lower processing fees during prosecution.

With the pre-examination search, the claims of the patent application can be specifically tailored to an invention such that the patent has a higher likelihood of being granted by the USPTO. Hence, fewer office actions (back-and-forth responses between the attorneys/inventors and the USPTO) are expected, which reduces the overall prosecution costs. The result is that an accelerated application may be about the same cost as a standard application, with the benefit that the granted patent may be achieved much quicker (less than 1 year compared to 3-4 years), but the downside is the application costs and fees are due within that first year rather than distributed among the entire prosecution time (3-4 years).

Recommendation

The Accelerated process can deliver a granted patent within one year at an overall cost that may be similar to that of the standard application and several thousand dollars cheaper than the Track One process. Given the various start-up strategies that can benefit from obtaining a patent as quickly as possible (see two examples provided previously), it would be wise to consider filing an accelerated application for the first application on each unique invention/patent family.

It should be noted that an accelerated application often has more narrowly written claims than would be included in a standard application. This is to increase the speed with which the patent may be granted. Hence, it may be wise to file a continuation application (at standard priority) with a more broadly written claim scope. The continuation will also allow the patent family to stay active, so further applications can be written toward the initial disclosure. This is highly desirable by a potential acquirer of the patent portfolio as they may have substantially more financial resources and can file additional applications that are tailored to their specific embodiments. Thus, the flexibility of keeping the patent family active can raise the value of the entire patent portfolio.